Are you an ostrich, penny-pincher or a wizard?
What’s your score?
Add up the number of As, Bs, Cs and Ds you circled. The category in which you have the highest score represents your money personality, although you may display some characteristics of others. Read on for some targeted tips on how Penny-Pinchers, Wizards, Ostriches and Ms. Joneses can get and keep things on track financially.
The Penny-Pincher (mostly As)
Okay, okay, you’ve got lots of money in the bank and you don’t waste it — ever — and that’s a good thing. But you can be so focused on hanging on to your cash that you can’t enjoy the financial security you’ve built.
Another danger, points out Patricia Lovett-Reid, senior vice-president of TD Waterhouse in Toronto, is penny-pinchers tend to be conservative investors. If you’re erring on the side of caution by sticking with fixed-income investments — such as money market funds and GICs — according to Lovett-Reid, you’re earning negligible returns and inflation can eat away at your nest egg. “Assuming a two per cent annual inflation rate over a five-year period, $10,000 would purchase goods worth $9,039,” she points out. “In 15 years, that sum would be worth just $7,300.” To add insult to injury, interest income is fully taxable, while capital gains and dividends get more favourable tax treatment.
Get things back on track “For penny-pinchers, it’s all about security,” says Diane McCurdy, a certified financial planner in Vancouver. Find some peace of mind by assessing how much you need to set aside to meet goals such as paying off the mortgage and funding the kids’ education or a worry-free retirement. Come up with your magic number by going through a detailed financial analysis with a financial planner or by using the forms at howmuchisenough.ca.
As a rule of thumb, if you’re saving 15 to 20 per cent of what you earn, suggests McCurdy, you should be very comfortable in your golden years. So once your basic expenses and your long-term savings needs have been taken care of, feel free to spend a little of your hard-earned cash. Go ahead and retire those ’70s sneakers. Your feet will thank you. And while you’re at it, try for a more balanced investment portfolio with (gasp!) perhaps some blue-chip stocks and high-quality bonds. “You have to stretch yourself to be a little more aggressive when it comes to investing,” says Lovett-Reid.
The Wizard (mostly Bs)
Pat yourself on the back. You have a good idea of where your money is going and you’re channelling cash toward financial priorities such as the mortgage, the kids’ education and your own retirement. On the other hand, you’re not afraid to reward yourself with the little things that make life enjoyable.
Get things back on track No need. You have a balanced approach to spending and saving. Says McCurdy: “You’re absolutely on the right track. You just need to take stock regularly to make sure things remain balanced.”
The ostrich (mostly Cs)
Like your namesake, you tend to bury your head in the sand when you don’t want to deal with something. And money is one of those things. You are likely one of the 67 per cent of Canadians with less than three months’ savings in the bank and you may well be part of the 23 per cent who live day to day and don’t even think about saving.
“Ostriches are living from paycheque to paycheque because they haven’t figured out how to take control of their financial situation,” says Lovett-Reid. A new muffler for the car or basic home repairs is enough to send you into a tizzy, and if you have an investment portfolio at all, there’s a good chance it’s filled with a random array of investments fuelled by “hot tips” from others. You may even harbour a Cinderella fantasy that a handsome prince is going to come along and rescue you from financial chaos.
Get things back on track Pull your head out of the sand and give it a shake, woman! You need a map to guide you along the road to financial security. That road map is called a budget. Determine your financial goals, including paying off the mortgage, funding your retirement or covering the children’s education, as well as short-term goals such as buying a new couch or vehicle, or taking a vacation. List these “wishes” in order of priority.
Create a monthly budget for necessary expenses (food, clothing and shelter) and pro-rate annual expenses, if you can, to give your budget predictability. Factor in a cushion for unexpected car repairs and other expenditures that can throw a budget off track. Finally, channel at least 10 per cent of your before-tax earnings directly into RRSPs and other savings vehicles. “You won’t even know it’s gone,” says McCurdy. “And you’ll be surprised how quickly it builds up.”
You will need to pay some attention to what’s in the portfolio, points out Lovett-Reid. The good news: You don’t have to go it alone. “I’m in the financial industry, but I still use a financial adviser,” she says. “I want someone to bounce ideas off of, I want someone to execute them, I want someone to help me keep my emotions in check.”
